Regressive Tax Hikes, Spending Cuts, & Combined Reporting Used to Close DC Budget Gap

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As in most places around the country, the District of Columbia recently concluded debates over how to close its budget deficit.

Council member Jim Graham proposed what was perhaps the best idea of the debates -- a modest income tax increase on incomes over a half million dollars.  As Ed Lazere, Executive Director of the DC Fiscal Policy Institute (DCFPI) recently stated, "If you are thinking about how to balance the budget while sparing the local economy, there is a pretty good consensus among economists that raising taxes among high-income folks is probably the best way to go, because it does not tend to affect their consumption."

Ultimately, however, Graham's proposal failed to gain support, and the city instead decided to increase sales, cigarette, and gas taxes, in addition to dramatically cutting spending.  While some kind of tax increase was undoubtedly necessary, the particular increases chosen by the council will disproportionately impact low-income families.  The same can be said of some of the city's spending cuts.  For example, Temporary Assistance for Needy Families (TANF) was modestly reduced under the new budget, though much larger proposed cuts in the program were avoided.  Education was hit especially hard -- to the tune of $30 million.

Fortunately, in addition to revenue raisers and spending cuts just described, the District also decided to require "combined reporting" of corporate income for tax purposes.  This measure should provide some additional revenue for the city, while also improving the fairness of the District's corporate income tax.

As the DCFPI points out, some of the cuts made by the council could have been mitigated if federal restrictions on the city's use of its rainy day fund were relaxed.  The DCFPI has a wealth of information on the DC budget debates on their website.

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